Choice of Law May Result in Claim Forfeiture

Monday, May 03, 2004

In an unpublished decision, the U.S. Court of Appeals for the Second Circuit ruled that a freely negotiated choice of law clause is binding, even where that choice tacitly included forfeiture of a claim. In the instant case, an insurance policy purchased by a ship owner included a clause providing that Norwegian law was controlling. Norwegian law does not recognize a maritime lien for unpaid insurance premiums. The ship owner went into bankruptcy, owing various debts, including the insurance premiums and various mortgages. The court held that, in transactions of an international character, a choice of law clause is binding unless the court finds that it would be unfair, unjust, or unreasonable to hold a party to its bargain. In re Millenium Seacarriers, Inc., No. 03-5028 (2nd Cir.) (HK Law)